There’s a famous line in the movie “The Graduate” where a young Dustin Hoffman receives this bit of career advice from a businessman: “One word, Benjamin: plastics.”

He wasn’t talking about credit cards, but he might as well have been. Back in the 1960s only about 30% of Americans had credit cards. Today more than 80% of us do.  It’s what I call the democratization of credit.

This revolution in the way we pay for things benefits everyone: shoppers, retailers, online companies, banks, record keepers, and so on.

It’s no exaggeration to say that credit cards are the grease that make the great American economic engine run smoothly.

Today, we increasingly tap our phones at the check-out lines, rather than swipe the plastic card.   All told one of every three consumer purchases today are with credit cards. I’ve noticed lately that stores now have signs that read: “Sorry, we don’t take cash.”

But now some politicians in Washington won’t leave well enough alone. In order to make things “more affordable,” they want to impose price controls on how much the credit card companies charge merchants.  Even worse, they want to put an interest rate cap of 10% on late credit card payments.

I understand the impulse of lowering interest penalties.  Americans are still feeling the sting of the Biden inflation years, and  now higher energy prices due to the Iran conflict.

But good intentions cannot override the laws of economics. In a recent analysis conducted for Unleash Prosperity Now — based on rigorous research and a sweeping industry survey covering roughly 75 percent of the U.S. credit card market — we found a 10 percent rate cap would not lower costs for consumers. It would eliminate access to credit for tens of millions of them.

A 10 percent interest rate cap would result in more than half of all open credit card accounts being closed or having their credit lines drastically reduced. We’re talking about more than 100 million cardholders losing easy access to credit.

Especially vulnerable are the one-third of lower income American adults with sub-prime or near-prime credit scores — especially younger workers, people rebuilding after a financial setback, or those who temporarily lose a job.

For many of these families, a credit card isn’t a luxury. It’s how they cover a car repair, a medical bill, or groceries at the end of a tight month. The Federal Reserve’s own data shows that 37 percent of American adults couldn’t cover a $400 emergency expense from savings alone. A credit card is their safety net.

And it’s not just sub-prime borrowers who’d get hurt. Our study finds that many prime borrowers — solid, responsible credit card users — would see their lines of credit cut under a 10 percent cap.

Our study found that when Illinois imposed interest rate caps in 2021, access to credit cards for low-credit-rate households fell by more than one-third.

Even the “compromise” position of a 15% to 20% rate cap is problematic.  Our study finds millions of families would lose credit card access or face lower credit limits especially because interest rates have edged upward of late.

What is needed is better financial literacy in America.  Credit cards aren’t meant for a buy-now-pay-later mentality.  (Who do we think we are?  The federal government?). The high fees are meant as a deterrent to running up unpaid bills. The credit card companies mostly LOSE money when bills aren’t paid on time.

There’s an old saying: if something isn’t broken don’t fix it. Let the market work. There’s plenty of free market competition here: with four major credit card companies and scores of banks issuing them. Let the market decide and let the politicians deal with their own unpaid bills: the $40 trillion national debt.

Stephen Moore is a former Trump senior economist and serves as a senior fellow at the America First Policy Institute. He is  a co-founder of Unleash Prosperity.  

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.

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